Question - Preston Village engaged in the following transactions:
- It issued $20 million in bonds to purchase a new municipal office building. The proceeds were recorded in a capital projects fund.
- It acquired the building for $20 million.
- It recognized, as appropriate, $300,000 of depreciation on municipal vehicles.
- It transferred $2,060,000 from the general fund to a debt service fund.
- It paid $60,000 in interest on long-term debt and repaid $2 million of principal on the same long-term debt.
- It sold for $5 million village land that had been acquired for $4 million. The proceeds were recorded in the general fund.
Instructions:
Answer the following question based on the transactions outlined above.
1. For each of the transactions, prepare journal entries to record them in appropriate governmental funds (which are accounted for on a modified accrual basis).
2. Prepare journal entries to reflect how the transactions would be reflected in government-wide statements (which are prepared on a full accrual basis).
3. How can governments justify preparing two sets of financial statements, each on a different basis?